Introduction
The Income Tax Act, 1961 has several provisions that govern the deduction of tax at source (TDS) from payments made by certain categories of persons. One such provision is section 194J which requires a deduction of TDS on payments made for professional or technical services. This blog will discuss section 194J of the Income Tax Act, 1961 and its various aspects.
Overview of Section 194J
Section 194J requires that any person making a payment to a resident for professional or technical services must deduct TDS at the rate of 10% from the payment. The section defines professional or technical services to include services provided by a person in the following fields:
- Legal
- Medical
- Engineering
- Architectural
- Accountancy
- Technical consultancy
- Interior decoration
- Advertising
- Film making
- Any other profession or trade notified by the Central Government
Applicability of Section 194J
Section 194J applies to payments made to resident individuals, HUFs, partnerships, LLPs, and companies. However, the section does not apply to payments made to a person who is not engaged in a profession or business.
Threshold Limit
Section 194J does not have any threshold limit. Hence, TDS must be deducted on the entire amount of the payment made for professional or technical services.
Rate of TDS
The rate of TDS under section 194J is 10% of the payment made. However, if the payee does not furnish his/her PAN (Permanent Account Number), the rate of TDS is 20%.
Time of Deduction and Deposit of TDS
TDS must be deducted at the time of credit of the amount to the payee’s account or at the time of payment, whichever is earlier. The TDS deducted must be deposited to the government within the due date specified by the Income Tax Department.
Consequences of Non-Compliance
If the deductor fails to deduct TDS or deducts a lesser amount of TDS than required, he/she will be liable to pay interest at the rate of 1% per month or part thereof on the amount of TDS not deducted or deducted but not deposited. Additionally, a penalty may also be levied.
Additional Information on Section 194J
Exemptions
There are a few exemptions provided under Section 194J. Payments made to the following categories of people are exempted from TDS deduction under this section:
- Individuals and HUFs whose total sales, gross receipts, or turnover from the business or profession do not exceed the monetary limits prescribed under Section 44AB during the previous year.
- A person who is a resident and whose income from professional services or technical services rendered by him in any previous year does not exceed fifty lakh rupees and he has furnished his Permanent Account Number to the payer.
- Payments made to the Government, local authority, statutory corporation, or any other specified authority.
However, the payee must provide a declaration to the deductor in order to claim such exemption.
Filing of TDS Returns
Once TDS has been deducted under Section 194J, it is mandatory for the deductor to file a TDS return in Form 26Q with the Income Tax Department. The TDS return must be filed on a quarterly basis within the due dates prescribed by the Income Tax Department.
Challan 281
The TDS deducted under Section 194J must be deposited to the government using Challan 281. The challan must be filled with the details of the tax deducted, including the name of the deductor, PAN, TAN, and other details.
Deduction of TDS by Government
Section 194J also requires the government to deduct TDS on payments made to contractors for the supply of labour, services or contracts. The rate of TDS deducted by the government is 1% for individual and HUF contractors and 2% for other contractors.
Conclusion
Section 194J of the Income Tax Act, 1961 is an important provision that governs the deduction of TDS on payments made for professional or technical services. The provision is applicable to various categories of persons and requires TDS to be deducted at the rate of 10%. Non-compliance with the provision can result in interest and penalty being levied. Hence, it is important for deductors to comply with the provisions of the section to avoid any consequences.
Read more useful content:
- section 145 of income tax act
- section 10e of income tax act
- section 9 of the income tax act
- section 94b of income tax act
- section 206aa of income tax act
Frequently Asked Questions (FAQs)
- What is the meaning of “professional or technical services” under Section 194J?
- Professional or technical services refer to services rendered by a person in the fields of legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, advertising, film making, or any other profession or trade notified by the Central Government.
- Who is responsible for deducting TDS under Section 194J?
- The person making the payment for professional or technical services is responsible for deducting TDS under Section 194J.
- What is the rate of TDS under Section 194J?
- The rate of TDS under Section 194J is 10% of the payment made.
- Is there any threshold limit for deduction of TDS under Section 194J?
- No, there is no threshold limit for deduction of TDS under Section 194J.
- Is PAN mandatory for deducting TDS under Section 194J?
- Yes, PAN is mandatory for deducting TDS under Section 194J. If the payee does not furnish his/her PAN, the rate of TDS is 20%.
- Can an individual or HUF claim exemption from TDS under Section 194J?
- Yes, an individual or HUF whose total sales, gross receipts, or turnover from the business or profession do not exceed the monetary limits prescribed under Section 44AB during the previous year can claim exemption from TDS under Section 194J.
- Is it mandatory to file TDS returns under Section 194J?
- Yes, it is mandatory to file TDS returns under Section 194J on a quarterly basis using Form 26Q.
- What is Challan 281 and how is it used for depositing TDS under Section 194J?
- Challan 281 is used for depositing TDS under Section 194J. It is a form used for making tax payments to the government and must be filled with the details of tax deducted, name of the deductor, PAN, TAN, and other details.
- Is the government also required to deduct TDS under Section 194J?
- Yes, the government is required to deduct TDS on payments made to contractors for the supply of labour, services, or contracts under Section 194J.
- What are the consequences of non-compliance with the provisions of Section 194J?
- Non-compliance with the provisions of Section 194J can result in interest and penalty being levied on the deductor. It is, therefore, important to comply with the provisions of the section to avoid any consequences.
